When it comes to New Year’s resolutions, it’s not the promises we make to ourselves in January that count, but rather the changed behavior in place as time goes by. Nowhere is this more true than when it comes to finances and investing.
If you really want to improve your finances and investing this year, then it’s best to pick several areas to work on.
Then implement small changes in each area that you will consistently apply throughout the new year.
Here are some examples.
Pick One New Career Skill to Master
Career is probably the most under-appreciated financial area for most people, but it is also the most basic. It not only enables us to afford our lifestyles, but it also represents the primary source of investment capital.
This being the case, we need to make continuous improvements in our ability to do our jobs well, in order to be promoted and increase our income.
Since this is a new year, pick one new career skill to learn and master. It should be a skill that will enable you either to do your job better, or prepare you for your next career move.
We often think dramatic improvement is necessary in order to advance in our careers, when in truth it’s best done in small steps. This may be a chance not only to learn a new skill, but to become so good at it others can’t help but notice.
Once this happens, the money will follow. The key is to pick at least one skill and follow through on it. If you do this each year, your career will grow over time. The New Year is the perfect time to embrace this.
Get Serious About Paying Off Debt
If you have a lot of debt, it probably won’t be practical to make a resolution like having it all paid off by the end of this year. However, you can start whittling it down in small chunks.
Even if it takes you several years to accomplish the goal, it will eventually happen, but you have to get started now. And the new year is the perfect time to do it!
There’s actually nothing dramatic you need to do here. If you simply resolve not to take on any new debt this year, and faithfully make all of your debt payments for the balance of the year, you will owe less money by next New Year’s Day.
You can fast forward the process by adding a little bit extra to each monthly payment, to accelerate the pay down of each loan.
Alternatively, you can make the minimum payments on all of your debts, but select one for complete extinction by the end of the year. The impact can be particularly significant if the debt you target for payoff is a car loan or your largest credit card bill.
Let’s say you have a car loan with a $400 monthly payment, and a $7,000 balance. By paying off that single loan, you’ll free up $400 in extra cash flow each month. This can open a lot of doors to you to pay off additional debts, or to direct money into savings and investments. Resolve to do it this year, and start right now.
Setup a Payroll Savings Deposit
If you are a little bit light when it comes to savings, the new year is an excellent time to commit to improving the situation. If you aren’t doing so already, start a payroll direct deposit into your savings account.
It doesn’t have to be huge amount of money. If you are paid biweekly, you can save $1,300 by the end of the year just by directing $50 out of each paycheck and into your savings. It’s not a fortune, but it’s a start.
Increase Your 401(k) Contributions
The New Year is also an excellent time to increase your 401(k) contribution, at least by a little. And again, you only need to do this in small increments.
If you are contributing 10% of your pay to your plan, you can simply increase it to 11%. The increase will be small, not the least of which because part of the increase will be offset by lower payroll taxes.
You can make a longer term plan to increase your contributions to 15% over a five year period, by making the same increase each year — upping your contribution by 1% each year for five years. But in order to make that happen, you have to get it started, and a new year is the perfect time to start.
If You Aren’t Beating the Market, Switch to Index Funds
A new year is also an outstanding time to change investment strategies, if it’s needed. If you’ve been picking your own stocks, or using actively managed funds, but not beating the market, now is an excellent time to punt and move your investments over to index funds.
With index funds, you’re guaranteed to at least keep pace with the general market, there will be lower investment fees, and you won’t need to concern yourself with stock selection and tracking, or managing your portfolio again.
How to Improve Your Investments and Finances
None of these strategies individually will dramatically improve your finances and investments in the coming year. But the combination of all five will be a good start. And that’s the point of New Year’s resolutions — to get started.
What steps are you taking to improve your finances and investing in 2016?